Relief from CCA 2002 ‘Pay now argue later’ provisions

Timothy Bates of Auckland law firm Legal Vision.

Timothy Bates, principal of Auckland law firm Legal Vision, reviews the recent decision of Brussell Construction Ltd v Manchester Industrial Holdings Ltd.

This is a decision where, despite a contractor having seemingly won the battle of compliance with the strict provisions of the Construction Contracts Act 2002, the court, in the context of an application to stay liquidation proceedings, was prepared to provide relief from “pay now argue later” provisions of the Construction Contracts Act 2002.

Brussell was a contractor who contracted to carry out building renovations to a property owned by Manchester. The dispute emerged once the sixth payment claim was issued on April 1, 2013.

It was contended by Manchester that the payment claim did not appear to correlate with the work actually performed. Manchester asked questions that were never addressed by Brussell, it then terminated the building contract and engaged another company to complete the work.

Manchester contended that 80% of Brussell’s work needed to be demolished and rebuilt. It also alleged that it had used unqualified workers who did not follow proper building methodology. A number of defects in the work were identified.

Brussell issued a further payment claim on April 13, 2013, seeking $17,000. Manchester sent an email in response, disputing this payment claim on April 17, 2013, but also seeking all materials invoices. It was noted in that email that any payment schedule issued would show a nil amount owing.

There was no response from Brussell for more than a year. On July 31, 2014, it eventually issued a payment claim for $46,000 covering all work carried out at the property between November 26, 2012, and April 2013.

Manchester, in turn, replied, asserting that the payment claim was disputed and that the payment schedule amount owed was nil. Brussell then issued a statutory demand for the full amount of the payment claim — the rationale being, no doubt, that the response by Manchester did not constitute a payment schedule, rendering the amount claimed in the payment claim a debt that was due and owing.

Adjudication proceedings were initiated on this basis. These were defended by Manchester, asserting that the payment claim was invalid as it did not identify the work for which it was claiming.

Brussell was ultimately successful in the adjudication proceedings, as it was ruled that, in fact, the payment claim was valid, and that Manchester had failed to serve a valid payment schedule.

Liquidation proceedings had been issued prior to the determination of the adjudication. The issue that Manchester asked the High Court to determine was whether the liquidation proceeding ought to be stayed pending Manchester bringing a judicial review application in respect of the adjudication determination.

• argued the debt upon which the liquidation claim was based was genuinely disputed, the payment claim being invalid,

asserted that if it was ultimately successful as against Brussell in its judicial review proceedings, Brussell would not be able to refund the $46,000 sought, and

had deposited $46,000 into an independent solicitor’s trust account pending the determination of the judicial review.

The court was assisted by the judgment of Associate Judge Bell in Kariiti v Donovan Drainage & Earth Moving, where he held that a payer can persuade a court to relieve it from the enforcement of its obligations under sections 23, 24 and 59 of the Construction Contacts Act 2002 where:

there is a high degree of likelihood that the payee will not be able to repay if a determination after a dispute resolution procedure under s26(1) goes in the payer’s favour, and

that it has a good arguable case that it will succeed in the dispute resolution procedure under s26(1).

The court ruled on the evidence presented as to the financial capability of Brussell to repay the sum of $46,000. It was unlikely that it would be able to refund these monies if paid out to it, prior to determination of the judicial review proceeding.

It did go on to say that the Associate Judge Bell had set the test at too high a level when he suggested “a high degree of likelihood of not being able to repay” was necessary to meet this first requirement.

The court also ruled that Manchester had a reasonable argument that a valid payment claim had not been submitted, thus meaning that the “pay now argue later” provisions may not come into effect.

More fundamentally, it ruled that there was ample evidence that there were defects in the work performed by Brussell at the property, specifically referencing the allegation that 80% of the work complete now had to be redone. The liquidation proceeding was accordingly stayed.

This decision is important because it does establish some limited instances where the court will provide relief as against the strict application of the “pay now argue later” enforcement provisions of the Construction Contracts Act 2002.

Note: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by Legal Vision or Building Today to anyone who relies on the information contained in this article.

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